Risk Sharing and Portfolio Allocation in EMU

62 Pages Posted: 18 Dec 2008 Last revised: 25 May 2010

See all articles by Yuliya Demyanyk

Yuliya Demyanyk

University of Illinois at Chicago

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance; European Corporate Governance Institute (ECGI)

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 1, 2008

Abstract

This paper investigates whether risk sharing, measured as income and consumption smoothing, among countries in the EU and the European Economic and Monetary Union (EMU) has increased since the adoption of the euro. We ask: Have the recent increase in foreign equity and debt holdings been associated with more risk sharing? Do certain classes of assets (debt, equity, foreign direct investment) provide relatively more or less risk sharing? Do liabilities provide risk sharing differently from assets? Do investments in EMU countries provide more or less risk sharing per euro invested compared to investments in non-EMU countries? Has increased banking integration improved risk sharing? Due to the short span of years since the introduction of the euro, our results are tentative, but they indicate that the monetary union has facilitated risk sharing, although the level of risk sharing is still much below the level found among U.S. states.

Keywords: Risk sharing, portfolio allocation, financial integration

JEL Classification: F36, G21, G11, E44, E21

Suggested Citation

Demyanyk, Yuliya and Ostergaard, Charlotte and Sorensen, Bent E., Risk Sharing and Portfolio Allocation in EMU (June 1, 2008). Available at SSRN: https://ssrn.com/abstract=1317692 or http://dx.doi.org/10.2139/ssrn.1317692

Yuliya Demyanyk

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Charlotte Ostergaard

BI Norwegian Business School, Department of Finance ( email )

Nydalsveien 37
Oslo, 0442
Norway
+4746410520 (Phone)

HOME PAGE: http://home.bi.no/charlotte.ostergaard/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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